Once tax season comes around, many tax filers understandably worry about being audited by the IRS. In reality, only a very small percentage of taxpayers are audited – less than one percent – but being audited can be stressful and time consuming. There are some steps you can take to minimize your chances of having to put up with the dreadful IRS audit.
More people actually make errors on their return if they file a paper return, rather than file electronically. Numbers that are illegible, a signature that looks like a scrawl, or lines crossed out can all be a red flag to the IRS, when it comes to auditing. In fact, one of the most common problems on paper tax forms is simply forgetting to sign the form.
As a general rule, you are more likely to be audited if you earn over $200,000. Those who earn more are more likely to make an error on their return, or adjust the numbers in their favor. And of course, by targeting higher earners for an audit, the IRS potentially stands to make more money from the audit process. The more you earn, the more likely you are to be audited; if you are lucky enough to make over a million dollars a year, your chances of an IRS audit increase to about 6 percent.
You may also want to be careful of claiming too many charitable deductions; another red flag for the IRS. If you do give generously and regularly to charity, always keep receipts in case of an audit. If you are self employed, the IRS will probably look more closely at your return, and you should only claim something as a deductible business expense if it’s essential for doing your job. One of the most abused tax deductions is for a home office deduction by those who work from home.
Other things on your tax return that may cause the IRS to look more closely include claiming no adjusted gross income despite claiming the earned income tax credit (EITC), filing a schedule C, and forgetting to include any 1099 earned income. Filing taxes isn’t fun, but being audited is arguably even less fun, and once tax season arrives, it’s worth taking the time and trouble to make sure your return is as accurate and as error free as possible. And of course, don’t forget to sign and date it.